The Scotts Miracle-Gro Company (NYSE: SMG) subsidiary Hawthorne has sued cannabis operator TerrAscend Corp (CSE: TER) and its executive chairman Jason Wild, alleging that it attempted to “ruin” the lawn and garden affiliate’s $175 million stake in a cannabis industry acquisition firm.
US investment firm JW Asset Management (JWAM)–which owns 40% of TerrAscend, making it the largest shareholder–is also named as a defendant. Wild also runs the firm as its president and chief investment officer.
Hawthorne, which dabbles in strategic minority investments in areas of the cannabis industry, accused JW Asset Management and TerrAscend of violating US antitrust law in their bid to dominate the board of directors of cannabis acquisition firm RIV Capital (CSE: RIV) in a lawsuit filed in Manhattan federal court on Monday.
The lawsuit pertains to the acquisition of Etain, one of 10 vertically integrated cannabis companies licensed in New York. Hawthorne claims that through the capital it infused in RIV Capital, the latter was able to make an offer for Etain, with the transaction closing slated for December 15, 2022.
However, TerrAscend also had plans to acquire Etain to gain a New York-licensed cannabis operation. JW Asset Management, which also owns 20% of RIV Capital, tried to block the acquisition deal, allegedly making way for TerrAscend to make the acquisition instead.
“Defendants thus sought to leverage JWAM’s position in RIV Capital to stop the Etain deal. Wild pressured RIV Capital’s board to call off the Etain deal. He claimed that RIV Capital’s relationship with Hawthorne and its purchase of Etain threatened his ability to ‘oversee and control’ RIV Capital,” the plaintiffs wrote in their complaint.
Hawthorne further said that Wild threatened to buy a hemp license in New York since, in his opinion, RIV Capital could not acquire Etain’s cannabis license if one of its owners already had a hemp license. He also wanted confidential information about the transaction and sued RIV Capital in Canada.
Wild and JWAM launched a proxy contest in December 2022 (scheduled for June 2023) to try to remove the Hawthorne-nominated directors on RIV Capital’s Board. Hawthorne has a $175 million investment in RIV Capital and as part of this, Hawthorne has three seats on RIV Capital’s board.
“Wild has acknowledged that he would like to disrupt the Etain deal because TerrAscend wants a New York cannabis license. The numbers drive home where Wild and JWAM’s priorities lie: JWAM owns approximately $159.4 million in TerrAscend stock, dwarfing its approximately $4.4 million interest in RIV Capital,” the plaintiffs added.
Hawthorne claims that JWAM, TerrAscend, and Wild’s actions to overtake RIV Capital constitute a violation of the federal antitrust law.
“Section 7 of the Clayton Act provides that ‘No person engaged in commerce… shall acquire, directly or indirectly, the whole or any part of the stock or… assets of another person, where in any line of commerce… in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.'” the plaintiffs cited, arguing that ownership in both TerrAscend and RIV Capital constitutes the violation.
“Defendants have used and will continue to use JWAM’s ownership interest in RIV Capital to attempt to substantially lessen competition in the New York-New Jersey cannabis market for TerrAscend’s benefit,” they added.
Wild issuing a proxy fight to take control of RIV Capital’s board also constitute a violation of the Section 8 of the Clayton Act which provides that “interlocking directorates” of competing firms must be prohibited–in this case, Wild’s directorship in TerrAscend and, once the proxy fight succeeds in favor of JWAM, RIV Capital.
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